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Showing posts from September, 2014

Mortgage Credit

In the wake of the Subprime Mortgage Crisis that led us to the Great Recession of 2009 it is not surprising that government responded by tightening up the lending standards and creating new disclosure rules for lenders when dealing with borrowers.  No one can deny that too many unqualified borrowers were granted loans that led to great dislocations for both those individuals as well as for the economy as a whole.


We have all undoubtedly had our experiences with police, and most of us have a bad taste in our mouths as a result.  Whether it be hounding us for motor vehicle violations or, much worse, abusing their positions to harm us, it has become clear that many in the police force have forgotten that their mission is to “Serve and Protect,” and instead have seemed to replace that mantra with something more akin to “Harass and Bully.”

Understanding Risk

I was sitting with a friend recently and I asked him what he thought of today’s investing world and how he was investing his money.  He told me that he had some real estate investments in partnerships with people he knew and that he had some money in bonds and some even in stocks too, although he knew those were fully priced.  I pressed him on the bond allocation, because at today’s rates I find it very hard to understand why anyone prefers a bond to cash.  The after-tax return just seems like too little to part with the flexibility of having the dry powder.  My friend told me that he had a portfolio of highly rated bonds of varying maturities, with a healthy share being of the 10-year and longer maturity.   He explained to me that he was invested in these because he was seeking to avoid risk, given that stocks and other financial assets seemed to be so fully priced.  I felt so sorry for him at that moment because he, not being an investment professional, was making a fundamental mist…


Many would agree that we are once again in bubble territory in the pricing levels of financial assets.  In spite of a thorough absence of economic vibrancy and extreme levels of geopolitical instability that at the least drain resources that could otherwise be invested in economically productive endeavors, pricing of financial assets are at or near historical highs.  The questions that are on many people’s minds today include:  How long can this go on for?  What could cause the bubble to pop? How can I protect myself when it does?

Historical Perspective

Today’s world is interesting, and while it is similar in ways to times past it is very unique in most.  There is a somewhat familiar significant bubble in the prices of financial assets.  However, unlike times past this bubble has a lot to do with Federal Reserve’s heavy interventionist hand both in managing interest rates towards zero (ZIRP) as well as printing money and using it to buy financial assets (QE).   There is somewhat familiar geopolitical instability with Russia acting in an imperialist manner, Israelis fighting Palestinians, and more than a few in less affluent nations chanting “Death to America,” or some reasonable facsimile thereof.  But there are also significant differences, as something called ISIS has attracted Islamic fundamentalists from many parts of the world to come and form a new nation that seems to be very aggressive and intolerant of other ideologies.  Today this is movement may be more a blob of anger than a nation but it aspires to become the latter and…